Abstract | The term "Dutch disease," also known as the "Groningen effect," was coined to explain
the negative repercussions that might result from a sharp growth value in a country's
currency. Commonly it is connected to a new discovery and/or exploitation of a rich
natural resource vein, as well as the unexpected results that such a discovery might have
on a country's entire economy. The following is the mechanism: Due to growing prices
and/or volumes, large revenues from natural resource trade provide a balance of payments
surplus, resulting in a significant appreciation of the national currency's real effective
exchange rate. This makes local non-primary commodities noncompetitive. The Dutch
disease is characterized by a loss of manufacturing competitiveness. Reducing the
competitiveness of the price of produced items exported, and increased imports. Both of
these events are the caused by an appreciation of the domestic currency. In the long run,
when manufacturing jobs shift to nations with lower-costs, these factors may play a hand
in raising unemployment. Non-resource-based industries, on the other hand, suffer as a
result of the greater income created by resource-based industries. In Russia's instance, the
country's issues have been aggravated by the country's transition from a planned to a
market economy. The presence of "Dutch disease" in the Russian economy is suspected
based on the behavior of many economic indicators. The indicators include a substantial
upward trend in the ruble's real effective exchange rate, as well as a consistently positive
capital account. Russia continues to be a key global oil supplier, accounting for 13% of
the worldwide market. Russian exports currently account for around 30% of GDP, with
raw material exports accounting for 90% of the total value of goods exported. Only two
items account for two-thirds of these raw materials: oil (and its derivatives) and natural
gas, which gives in to the potential presence of the „Dutch Disease” in the country, given
the large part the two goods have in their economy. |